1 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 9 – Financial Services Bilateral screening: Chapter 9 PRESENTATION OF MONTENEGRO Brussels, 10 June 2013

Financial Services 2 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial Services Investment funds in Montenegro Sanja Radusinović Securities and Exchange Commission of Montenegro

Financial Services 3 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services OUTLINE OF THE PRESENTATION LEGAL FRAMEWORK:  LAW ON INVESTMENT FUNDS CURENT SITUATION THE LEVEL OF COMPLIENC DYNIMICS OF CONVEREGENCE. ALTERNATIVE INVESTMENT FUND MANAGERS

Financial Services 4 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services LEGAL FRAMEWORK EU legislation: Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) – this Directive applies to undertakings for collective investment in transferable securities established within the territories of the Member State. National legislation: Law on investment funds (OG of Montenegro No 54/11) – this Law regulates conditions for establishment and operations of investment fund and investment funds management companies, conditions for issue and redemption of investment funds’ investment units, funds’ transformation and other issues relevant to the investment funds operations.

Financial Services 5 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services LAW ON INVESTMENT FUNDS The regulatory framework for investment funds in Montenegro is set by the Law on investment funds (OG of Montenegro 54/11) which came into force in December 2011 and is specified by a set of Rules issued by the Commission. The Law regulates conditions for the establishment and operations of investment funds and investment funds management companies, conditions for issue and redemption of investment funds’ investment units, funds’ transformation and other issues relevant to the investment funds operations.

Financial Services 6 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services INVESTMENT FUND Investment fund is a collective investment undertaking the sole objective of which is public rising of funds of natural and legal persons and investment of those funds in securities and other important issues regarding investment funds’ operations. Investment fund may be organized as a mutual fund, i.e. may be established as a closed-end fund.

Financial Services 7 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services MUTUAL FUND In accordance with Article 4 of the Law: Mutual fund represents any undivided property that consists of transferable securities and / or other liquid assets referred to in Article 25, paragraph 1 of this Law, if:  it is organized and managed in accordance with the principle of risk diversification on behalf of joint owners whose liability is limited to the amount of their capital contribution;  the rights of owners are represented by investment units that are publicly offered and whose value is payable, on the demand of holder, out of the assets of a mutual fund managed by the management company.

Financial Services 8 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Chapter 9: Financial services TYPES OF MUTUAL FUNDS Mutual funds may be organized and operate as: 1)Open-end mutual fund:  which is organized with the aim of joint investment of capital collected from the public into transferable securities or other liquid financial assets referred to in Article 25, paragraph 1 of this Article, and which operates under the principle of risk diversification,  with investment units that are, at the holder's request, redeemed or paid, directly or indirectly, out of the funds of the respective company. 2) Mutual investment fund established with the specific investment objective, such as: investment fund for investments in registered capital and investment funds for investments in derivative securities. 3) Specialized investment funds.

Financial Services 9 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Chapter 9: Financial services CLOSED-END INVESTMENT FUND Closed-end investment fund is the fund organized as a joint stock company whose initial capital is divided into shares of the same class that are freely transferable and traded on a regulated securities market. The minimum amount of registered capital of a closed-end investment fund shall be EUR 500,000. The Supervisory Board performs supervision over the management of closed-end investment fund.

Financial Services 10 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Chapter 9: Financial services MANAGEMENT COMPANY The management company shall be established as a joint stock company, and a subject of its business operations shall be solely the enforcement of activities for the establishment and management of investment funds, i.e. investment of cash assets on its own behalf and for the account of mutual funds unit-holders in the name and on behalf and for the account of shareholders of closed-end funds, as well as performing of other duties specified by this Law. Management company having an authorization granted by the Commission may manage the investment fund. Authorization may be granted if the management company has the registered capital of not less than EUR 125,000 provided that, when the value of the portfolio managed by the management company exceeds EUR 250 million, the management company is obliged to provide an additional amount of capital in the amount of 0, 02% of the amount for the value of the portfolio managed by the management company;

Financial Services 11 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services DEPOSITARY Depository activities, in accordance with the Law on Investment Funds, may be carried out by a bank which obtains a prior approval of the Central Bank of Montenegro to conduct depository activities, in accordance with the law regulating banking operations and which meets the requirements for performing depository activities established by these Rules. A depository, in addition to the depository bank, may be an institution that fulfills the following conditions: 1) that it is a legal entity, and 2) that its initial capital amounts to at least € 1,000, Four depositaries have a licence for conducting depositary activities for investment funds.

Financial Services 12 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services SUPERVISION The Commission shall supervise the management company and investment fund by giving approval to their regulations and by control of their operations in accordance with the Law. The Commission may also perform control of the depositary under the activities it performs in accordance with this Law.

Financial Services 13 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services CURENT SITUATION Under the Law on investment funds (OG of Montenegro No 49/04 dated July 22, 2004), 6 investment management companies are established and 6 investment funds - by transformation of privatization fund management companies to investment fund management companies and by transformation of privatization funds into investment funds. Under the Law on investment funds (OG of Montenegro No 54/11 dated November 24, 2011), mentioned 6 investment funds were obliged to be transformed into closed-end investment funds in the process of transformation and open investment funds in the process of transformation. During 2012: 4 were transformed.

Financial Services 14 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services THE LEVEL OF COMPLIENCE/DYNAMICS Current status: Partial compliance with directive 2009/65/EC (definitions, authorization of UCITS, obligations regarding management companies, obligations regarding depositary – full, mergers of UCITS, obligations concerning the investment policies of UCITS, Master-Feeder Structures, obligations concerning information to be provided to investors - full, general obligations of UCITS) Full compliance shall be achieved by changing the current Law. Dynamics of convergence: until the accession of Montenegro to the EU.

Financial Services 15 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 9: Financial services ALTERNATIVE INVESTMENT FUND MANAGERS Current status: No compliance with Directive 2011/61/EC Dynamics of convergence: until the accession of Montenegro to the EU.

16 Thank you for your attention! QUESTIONS